Summary

By the year 2000, Medicare, the nation's largest health insurer, expects to process more than 1 billion claims and pay $288 billion in benefits annually. To keep up, Medicare plans to spend $1 billion to replace nine separate automated processing systems with the Medicare Transaction System (MTS). MTS is intended to improve customer service; cut administrative and operating costs; strengthen controls over claims processing; improve contractor oversight; better protect against waste, fraud, and abuse; and accommodate managed care and other alternative payment methodologies. However, since GAO issued its first analysis in 1992, project costs have soared from $151 million to $1 billion. GAO concludes that the benefits of MTS will not be realized unless the Health Care Financing Administration (HCFA) overcomes serious management and technical weaknesses in three areas. First, HCFA needs to greatly improve management of its interim Medicare processing environment. Second, MTS should be better managed as an investment. HCFA has not followed practices that are essential if management is to make informed technology investment decisions, including preparing a valid cost-benefit analysis and considering viable alternatives. Third, HCFA has not adequately applied sound systems development practices necessary to reduce risk. GAO summarized this report in testimony before Congress; see: Medicare Transaction System: Serious Managerial and Technical Weaknesses Threaten Modernization, by Joel C. Willemssen, Director of Information Resources Management Issues, before the Subcommittees on Human Resources and on Government Management, Information and Technology, House Committee on Government Reform and Oversight (GAO/T-AIMD-97-91).

GAO noted that: (1) HCFA recognizes that the multiple Medicare claims-processing systems are difficult to administer, and is looking to MTS to achieve substantial administrative savings, increase claims control, and improve customer service; (2) to its credit, HCFA is using a phased development approach to reduce risks and is beginning to apply investment practices in its management of the MTS project; (3) however, the benefits of modernizing Medicare claims processing at an estimated cost of $1 billion will not succeed unless HCFA overcomes serious management and technical weaknesses in three major areas that place the modernization at great risk; (4) HCFA needs to greatly improve its management of the essential interim Medicare processing environment and the changes necessary for operating beyond 2000; (5) to successfully process the claims workload, consolidate existing processing sites, address year 2000-related systems problems, and convert from nine systems to two, careful planning is necessary; (6) however, such planning has not yet been done; (7) HCFA intends to develop these plans, but has not specified when; (8) the risks associated with concurrently converting major systems while at the same time managing ongoing development of MTS is magnified by the fact that changing from the existing claims processing environment to MTS is a larger, more complex systems-conversion challenge than anything HCFA has previously faced; (9) a schedule and estimate of needed resources for each major stage of the transition to the interim processing environment would ensure the availability of needed resources and help HCFA better manage and coordinate transition activities; (10) MTS is not being adequately managed as an investment; (11) HCFA has not followed practices that are essential if management is to make informed technology investment decisions, including preparing a valid cost-benefit analysis, considering viable alternatives, and fully evaluating how the proposed technology benefits will contribute to improvements in mission performance; (12) HCFA has not applied all the sound systems-development practices necessary to reduce the risk and assist management in controlling development of system requirements and software; and (13) along with not developing plans critical to the project's success, HCFA has not adequately overseen its contractors' software development strategy, adequately managed the project's schedule, or implemented a program to effectively address risk.